September jobs report throws a lifeline to investors
Bottom line In the wake of this week’s economic Armageddon, in which the September readings for the ISM manufacturing and service indexes hit fresh 10-year and 3-year lows of 47.8 and 52.6, respectively, this morning’s relatively mixed report on the labor market was a welcomed respite for investors.
The September employment report was modestly disappointing on the surface, with a softer-than-expected increase of only 136,000 nonfarm payroll jobs, compared with consensus expectations of 145,000 and Federated’s slightly more optimistic forecast of 148,000.
But July and August were revised sharply higher by a combined 45,000 jobs, more than offsetting September’s nominal miss of 9,000. Importantly, August alone was revised up by 38,000. That is true to form for Augusts, which have the quirkiest statistics of the year for the labor market. Flash reports in Augusts have missed consensus expectations to the downside by an average of 40,000 jobs over the past decade, only to be revised higher by an average of 65,000 jobs over the next two months.
In addition, the household survey added a healthy 391,000 workers in September, driving the unemployment rate (U-3) down to a half-century low of 3.5% and the labor impairment rate (U-6) down to a 19-year low of 6.9%. The participation rate held steady at a 6-year high of 63.2%.
On the negative side of the ledger, average weekly hours worked were flat at 34.4, manufacturing lost 2,000 jobs and average hourly wages were weaker than expected, with no change month-to-month (m/m) and a tepid 2.9% year-over-year (y/y) gain, its slowest reading since July 2018.
Fed is engaged While we continue to believe the Federal Reserve will execute its third consecutive quarter-point interest-rate cut at its policy-setting meeting on Oct. 30, this week’s macroeconomic developments have clearly increased the odds for additional Fed action on Dec. 11. Equity markets are bouncing strongly today, in part due to the perception that the Fed will act if needed.
No GM in today’s number The survey week for initial weekly unemployment claims, an important leading employment indicator, was a healthy 210,000 for the week ended Sept. 14, marginally higher than the 49-year cycle low of 193,000 in April. But the General Motors strike impacting 46,000 employees started on Sept. 15, so the United Auto Workers’ job action could begin to impair October results if the strike lasts for another fortnight or longer. Although ADP’s private-sector hiring rose by a slightly weaker-than-expected 135,000 jobs in September (consensus at 140,000), August was revised sharply lower, from a gain of 195,000 to 157,000.
Positive revisions are the story September posted a weaker-than-expected gain of only 136,000 jobs, compared with a consensus estimate of 145,000 and Federated’s more constructive estimate of 148,000. But August was revised up by 38,000 jobs to a gain of 168,000 and July was revised up by 7,000 to a final gain of 166,000. Government hiring in September rose by 22,000, led by gains of 14,000 local workers and 10,000 state employees. As a result, private payrolls rose by 114,000 in September, below consensus estimates of 130,000. But August was revised up by 26,000 to a gain of 122,000.
Household survey remains strong The admittedly volatile household survey (a leading employment indicator) added 391,000 jobs in September, down from a gain of 590,000 in August (its highest level since February 2018), compared with gains of 283,000 in July, 247,000 in June and 113,000 in May.
Construction rebounds, manufacturing slips The construction industry added 7,000 jobs in September, up from a downwardly revised gain of 4,000 in August (preliminary gain of 14,000) and up from a loss of 3,000 in July. The manufacturing sector suffered a weaker-than-expected loss of 2,000 in September, compared with a downwardly revised gain of only 2000 in August (cut in half from a preliminary gain of 4,000), and a gain of 4,000 in July. This is consistent with the contractionary reading we saw from the ISM manufacturing index the past two months.
Unemployment & labor impairment rates plunge; participation rate is flat The unemployment rate (U-3) fell to 3.5% in September (a 50-year low) from 3.7% in August, and the labor impairment rate (U-6) plunged to 6.9% in September (a 19-year low) from 7.2% in August, due in part to only 117,000 new entrants into the civilian labor force. The labor force participation rate held steady for the second consecutive month at 63.2% in September, a 6-year high.
Wages soft, hours worked flat This was the weakest part of today’s report, as average hourly earnings were unchanged in September, down from a 0.4% m/m gain in August, which matched a 5-year high. The y/y gain rose a disappointing 2.9% versus 3.2% in August, which is below February’s 10-year high at 3.4%. But this deceleration in wage growth should extend the economic expansion and help quell fears of recession. The average private workweek for all employees was unchanged for the second consecutive month at 34.4 hours worked in September. A change of 0.1 hour worked theoretically adds or subtracts 350,000 jobs to or from the economy.
Retail still weak Despite retail sales strength over the past six months through August, the sector cut jobs for the eighth consecutive month, losing 11,000 in September, compared with 6,000 in August, 2,000 in July, 12,000 in each of June and May, 15,000 in each of April and March, and 14,000 in February.
Temps solid Temporary help (a leading economic indicator) added 10,000 jobs in September, after adding 15,000 in August, compared with losses of 11,000 in July, 3,000 in June and 2,000 in May. But September and August’s strength may be related to the upcoming decennial census.